Bad economics remains the bane of sugar sector

Bad economics remains the bane of sugar sector

Bad economics, more than anything else, has blighted the Indian sugar sector.

With cane payment arrears piling up to about Rs 13,350 crore or Rs 133.50 billion (Uttar Pradesh alone accounts for Rs 10,000 crore or Rs 100 billion)), farmers should, by now, have realised arbitrary imposition of high premia over fair and remunerative price (FRP) at the state level is proving ruinous for the sugar economy.

The United Progressive Alliance government did not help the cause of the sector, the source of livelihood of about 50 million farmers and thousands of workers engaged in about 530 crushing mills and the tertiary sector, by making sugar imports easy in a glut situation.

Bad economics remains the bane of sugar sector

Fortunately, the heavily-in-the-red sector has started receiving the right kind of attention from the National Democratic Alliance government.

The Centre announced a slew of steps, including an additional grant of interest-free loans of Rs 4,400 crore (Rs 44 billion) to factories for settlement of cane dues; raising import duty from 15 per cent to 40 per cent which, however, is much lower than the World Trade Organisation-bound import duty of 60 per cent; extension of export subsidy of Rs 3,300 a tonne till September, ending uncertainty of its renewal every two months; and increasing blending of cane by-product ethanol with petrol from five per cent to 10 per cent.

Bad economics remains the bane of sugar sector

Food Minister Ram Vilas Paswan rightly says higher import duty will not have any bearing on domestic prices, as a "sugar-surplus India is not import-dependent."

Now, he might seek duty-free imports under the advance licence scheme be passed through the motion of re-export in a much shorter span, compared to the current 18 months.

The stock market's immediate reaction was positive. "No doubt the incentives will herald better times for the sector.

But for its sustainable good health, the government will have to give effect to the recommendation of the Rangarajan committee that the revenue in the sugarcane value chain be shared between farmers and milling units in the ratio of their relative costs," says Om Prakash Dhanuka, former president of Indian Sugar Mills Association (Isma).

Bad economics remains the bane of sugar sector

The Thai government has a cane and sugar fund to bail out farmers and mills in a bad season.

The challenge for India is to get states such as Uttar Pradesh to accept FRP and the linkage formula and discontinue the practice of fixing 'state-advised prices'.

Paswan has sent out a strong message to errant states, saying the "unremitting UP crisis is its own making".

While fixing cane FRP for a season, the Commission for Agricultural Costs and Prices considers three factors - production costs, the risk involved in growing cane and the remunerative return to farmers.

The government has fixed FRP for the sugar season starting October this year at Rs 220 a quintal, linked to a basic recovery of 9.5 per cent, a rise of Rs 10 compared to 2013-14. India has about five million hectares under cane cultivation.